Sundance Energy Australia Limited
 

2Q19 Net Sales at Top End of Public Guidance:Sundance Energy Australia Limited (ASX: SEA) is engaged in exploration and development of oil and natural gas in the United States of America.

Re-Domiciliation: The company recently announced that it has decided to re-domicile from Australia to United States, upon approval of a proposed Scheme of Arrangement, subject to shareholder, judicial and regulatory approvals. The re-domiciliation involves a Scheme Implementation Agreement with Holdco, a newly formed US corporation, that will become the ultimate parent of the company after the Scheme is implemented. As per the Scheme, Sundance investors will be entitled to receive one share in Holdco for every 100 Sundance shares, held by Sundance shareholders on the Scheme record date.

2QFY19 Results: Net sales volume for the quarter was reported at 1,264,686 boe, representing an increase of approximately 79% on prior corresponding period.Total revenue for the quarter amounted to US$52.9 million, increasing by approximately 84% as compared to the prior corresponding period. Net income attributable to owners of the company amounted to US$3.8 million.


Consolidated Statement of Operations (Source: Company Reports)

On the operational front, during the quarter, the company brought 6.0 gross (6.0 net) wells onto production, including the 4.0 gross (4.0 net) well Roy Esse pad in Live Oak County and the 2.0 gross (2.0 net) well Bracken pad in McMullen County.

Guidance: The company is expecting to report free cash flow positive position in the second half, as it believes to have reached its peak drawn debt level at the end of second quarter. Average sales volume for the third quarter is expected to be in the range of 14,000 – 14,500 boe per day. Full year sales volume is expected to be between 14,000 – 15,000 boe per day. During 2019, the company intends to bring 22 wells online, with 12 wells being placed onto production in the third quarter. Capital expenditure in the second half is expected to be between US$45 million and US$60 million. Capital cost guidance for FY19 remains unchanged at US$135 to US$155 million.

Stock Recommendation: The stock of the company generated negative returns of 47.95% over a period of 6 months. During the second quarter, the company reported higher than expected gas to oil ratio due to two primary factors including, the Dimmit assets and the four well Roy Esse pad, brought online. Adjusted EBITDAX of the company witnessed a growth of approximately 230%, with adjusted EBITDAX margin growth of around 64%. As per the announcement to the exchange on 11 September 2019, the proposed Scheme of Arrangement in relation to re-domiciliation of the company to United States saw an adverse reaction on stock price, declining by ~26.923% in the day’s trade. Considering the above scenario, investors are suggested to adopt a preliminary watch view on the stock to see the possibilities lying ahead. During the quarter ended 30 June 2019, the company had a gross margin of 78.4%, which is higher than the industry median of 51.2%. The company’s EBITDA margin for the quarter was 62.5%, which was again higher than the industry median of 36.0%. Hence, we give a “Hold” recommendation on the stock at the current market price of $0.195, up 2.632% on 12 September 2019.

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